FHA mortgage loans are becoming tougher to qualify for.As of January 1, 2009 HUD announced that any FHA cash out refinance would require two appraisals when the loan to value exceeds 85%. Since the customer usually has to pay for the appraisal, this adds around $350 to the cost of refinancing with the FHA. In addition, many underwriters are taking a very close look at appraised values, due to the continuing drop in home prices. In turn, the close scrutiny of appraised values by the underwriters are making many appraisers more conservative in the values that they assign to a home. The FHA also raised the down payment requirement on purchases to 3.5% and increased mortgage insurance premiums.The net result is that an FHA mortgage not only has higher costs but also a higher probability of being turned down due to insufficient equity and more stringent underwriting guidelines.

Some Banks Reduce Cash Out Limits for FHA Mortgage Refinancing
Two smaller banks today have reduced the cash out limits on FHA home loans to 85% loan to value, despite the FHA guideline allowing 95% cash out. Rumor has it that larger banks will also follow through on lowering the loan to value limits on FHA cash out refinancing. Tougher guidelines quickly spread industry wide, so expect many more lenders to make it more difficult to cash out on an FHA refinance.

Since FHA loans have a very high default rate (roughly 12%), it is only logical that banks are imposing tougher guidelines for borrowers. The banks simply cannot afford to take on additional default risk given their weak financial position. Many potential borrowers will continue to find it difficult to obtain mortgage approval until the economy recovers and the housing markets stabilize. Based on the way things are going, it could be a long wait.

The American Recovery and Reinvestment Act provides additional provisions:

FHA Mortgage Loan Limits – FHA home loan amount limits will be raised to $729,750 for homes in high-cost areas. Areas with higher-valued homes will enjoy the many benefits of a FHA mortgage, such as low rates and easier qualification standards. The bill reinstates 2008 FHA loan limits, with a maximum cap of $729,750. The bill also provides the option, if warranted, to increase loan limits for any “sub-area”, i.e.an area smaller than a county. These limits will expire December 31, 2009.

Home Ownership Tax Credit – A non-refundable tax credit of up to $8,000 will be available for buyers who purchase a home this year–before December 1, 2009–and who have not bought a house in the previous 3 years. This tax credit amount is based on 10-percent of the home’s purchase price, up to $8,000. To qualify, homeowners must keep their home for at least 3 years.

Simplified Mortgage Refinancing – Borrowers with less than a 20% equity stake in a traditional loan guaranteed by Fannie Mae or Freddie Mac (commonly referred to as “conforming” loans) may now refinance to up to 95% of their home’s market value without purchasing private mortgage insurance, which typically can increase monthly payments by hundreds of dollars.

Neighborhood Stabilization – $2 billion in additional funding is also made available to create the Neighborhood Stabilization Program (NSP) to address the problems facing whole neighborhoods that are decimated by foreclosures. Funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. States and localities can also use these funds to establish home financing methods for purchasing and redeveloping foreclosed properties.

Reverse Mortgages – Mortgage loan limits on Home Equity Conversion Mortgage (HECM) – or “reverse mortgage” loans will increase to $625,500 until the end of 2009. Current limits, which mirror conforming loan limits, will be raised to open up reverse mortgage options for many seniors who may want to rely on home equity as a stable source of income.

Low Income Housing – States will receive financing for construction and rehabilitation of low-income housing.

Rural Housing Programs – 100% home financing will be made available for rural housing loan programs.

Foreclosure Protection – $75 billion program will be established to subsidize mortgage loan modifications for participating mortgage lenders to assist many distressed homeowners facing foreclosure.

“FHA mortgage rates are still at historically low levels and this is still a great time to refinance,” says Isaacs. “However, there has been much talk that banks and lenders will make it harder for borrowers to qualify for loans for both new and refinanced home loans, especially for borrowers with less than perfect credit scores. I urge people considering a new home loan, mortgage refinancing of an existing loan or a loan modification to move quickly to lock in their best loan rate and options.”

This FHA loan enables homeowners can recapture 10% equity in their house immediately and benefit from mortgage reliefwith lower your mortgage payments with a FHA H4H Act Loan. The amendment would keep in place current taxpayer protections in the HOPE for Homeowners program that would be stripped if the bill passed without the amendment.

FHA mortgage lending continues to provide more opportunities for new homebuyers and borrowers in need of mortgage refinancing.FHA rates remain very attractive for borrowers who do not have much home equity left.FHA home loans enable borrowers with less than perfect credit qualify for refinance loans. The days of the no money home mortgages that assist homeowners in consolidating high rate debt or cash out second mortgage loans that new homebuyers would have to quickly refinance.

FHA continues to offer great 1st time homebuyer programs with new home financing requiring only 3.5% down. FHA mortgage brokers and lenders remain optimistic that Hope for Homeowners may help some of their borrowers prevent foreclosure. Home financing guru, Jason Cardiff said, whether it’s FHA or a loan modification, homeowners need to get up and do something to stop foreclosure.”Cardiff continued, “Mortgage lenders continue to provide loan modifications like we’ve never seen before, so contact a lender to refinance or seek counsel from a law firm that has a good track record of mortgage loan modifications with your lending company.” Read the original FHA loan article >FHA Mortgage Rates Creep Up to 5%